The risk-free rate is 8%, and the expected return on the market is 16%. As an analyst, you are preparing a recommendation report on the following stock:

Stock S

Beta 0.75

Expected dividend next year $1.10

Growth rate (g) 8%

Current Price (p0) $18

Using the SML, would you recommend buying or selling the stock?

		Sell, because the required rate is greater than the expected rate.
		Sell, because the expected rate is greater than the required rate.
		Buy, because the required rate is greater than the expected rate.
		Buy, because the expected rate is greater than the required rate.